IHC EXPECTS IRS AUDIT WILL BACK ITS TAX STATUS<BR>

The Internal Revenue Service recently completed an extensive audit of Intermountain Health Care to determine if the non-profit corporation should retain its federal tax-exempt status.

IHC expects the probe - which began in February - to result in a federal recommendation that IHC continue to be exempt from paying federal taxes because its charity care to the poor meets the federal "community benefits standard" established in 1969."Their preliminary indication is that the exempt status of IHC will continue," said Douglas Hammer, vice president and general counsel.

The IRS investigation into IHC is part of a national move to pressure the nation's 3,200 non-profit hospitals to provide more charity care to the poor or lose their federal tax-exempt status.

The IRS wants to know if non-profit hospitals provide emergency room care to all "regardless of ability to pay" and whether they exclude "any segment of the community," said James McGovern, IRS assistant chief counsel for employee benefits and exempt organizations in Washington, D.C. He is concerned that Medicaid patients may be excluded by some hospitals.

McGovern spoke to the Deseret News by telephone Wednesday.

Congress mandated the IRS crackdown on non-profit hospitals after a report issued by the General Accounting Office in May indicted many hospitals do not provide enough charity care to warrant federal tax exemption.

In response to that mandate, the IRS expanded the information it requires from non-profit organizations and broadened the scope of its audits. For example, non-profit organizations are now required to list the salaries of their top executives on new Form 990 tax returns. More detailed information on revenues, charity care and for-profit subsidiaries is also required.

A team of IRS examiners spent nearly 14 weeks in Utah probing IHC. "Through August they had two or three auditors on-site for weeks at a time," said Steven D. Kohlert, IHC senior vice president.

"They interviewed people internally. They visited hospitals, emergency rooms and clinics" during the "top-to-bottom review of the organization," Kohlert said."It is very clear their whole audit process is a whole lot more intense as far as hospitals are concerned."

The IRS plans to examine how non-profit hospitals recruit physicians and what compensation they offer the doctors as well as examine joint ventures between hospitals and for-profit companies, McGovern said. Hospitals that lure doctors away from competing facilities by promising them a share of their net earnings will lose tax-exempt status, he said.

Kohlert expects IHC to receive a "Good Housekeeping seal of approval" from the IRS, he said. IHC is convinced that federal approval will help persuade Utah counties to give IHC an exemption from paying property tax as well.

Some IHC hospitals have been denied property tax exemptions in Salt Lake and Utah counties in recent years. IHC appealed those denials to the Utah someone has taken a very hard look at us. We feel we are on solid ground," Kohlert said.

Hospitals of all sizes will be eligible to audit, McGovern said. But those "with complex, time-consuming tax problems hidden in their non-profit tax returns" will be more likely to receive a review, he said.

IHC apparently is one of the first systems audited, but corporation officials aren't sure why.

"We understand the IRS wanted to have a large case audit - a very large hospital or a good size system - as part of their mix. We were just the luck of the draw, I guess," Kohlert said.

If they haven't already, other non-profit organizations in Utah can expect similar IRS scrutiny.

"We will be ready if the IRS comes calling. It will be a relatively easy task for our hospitals and a relatively easy task for the IRS," said Rick Kinnersley, president, Utah Hospital Association.